Page 4 - NorthAmOil Week 01

NorthAmOil COMMENTARY NorthAmOil
US shale drillers take advantage of oil price spike
A spike in crude prices following the killing of a top Iranian general last week has led to US shale producers reportedly racing to hedge more of their output for 2020-21
US
WHAT:
US shale producers have reportedly increased their hedges on future production.
WHY:
Oil prices rose after a US air strike killed an Iranian commander in Iraq.
WHAT NEXT:
The price spike will provide some reprieve to a struggling shale industry but already appears to have been short-lived.
THE US shale industry has raced to capitalise on a spike in crude prices as tensions have risen in the Middle East in the wake of a US air strike in Iraq that killed Iranian Major-General Qassem Soleimani, head of the country’s elite Quds force. WTI prices had already crept up to above $60 per barrel since mid-December, exceeding $61 per barrel by the end of the month. The January 3 attack caused a further surge, with WTI peak- ing at almost $65 per barrel in the subsequent days. However, the price then tumbled from around $63 per barrel to below $60 on January 8 as comments by US President Donald Trump calmed fears over a broader conflict erupting in the Middle East.
Tensions in the region still remain, how- ever. Iran has vowed revenge for Soleimani’s death, and launched 22 missiles at two Iraqi bases housing US troops on January 8. Four of the missiles failed to launch and no casualties have been reported, as well as minimal damage, though this is unlikely to be the end of retalia- tory efforts. Indeed, several US oil companies, including Chevron, had already pulled some of their foreign workers out of Iraq temporarily as a precautionary measure before the missile strikes took place.
Oversupplied era
However, while the oil industry benefits from any rise in oil prices, it will be all too aware that
such increases can be short-lived in this era of global oversupply. This was previously illustrated most clearly in September, when Saudi Arabia temporarily shut down around 50% of its crude production – or roughly 5% of daily global sup- ply – following a series of drone strikes on one its oil facilities. This was the worst sudden oil supply disruption in history and crude prices spiked 20% in the immediate aftermath of the attacks – the biggest jump since the 1980s. How- ever, prices quickly fell back roughly in line with where they had been before the attacks occurred, helped by Saudi supply coming back online faster than expected.
The incident exacerbated worries about crude prices staying lower for longer, as there is so much excess supply readily available that even a major outage does not have a significant impact. Many producers are reported to have missed out on hedging opportunities during the rally in September because prices came back down unexpectedly quickly. It is with this in mind that the oil industry will now be respond- ing to the current situation in the Middle East. While there is certainly still potential for further disruption that will move crude prices, it comes as no surprise that some producers have been quick to capitalise on what looks like short-term prices gains.
Producers operating in some of the largest US shale regions were reported to have added
The attack on Saudi oil facilities in September illustrated how resilient crude prices have become to supply disruptions.
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Week 01 08•January•2020